Debt Ratios for Residential Financing
Your ratio of debt to income is a formula lenders use to calculate how much money can be used for a monthly home loan payment after all your other recurring debts have been fulfilled.
Understanding the qualifying ratio
For the most part, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less restrictive, requiring a 29/41 ratio.
In these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing costs. This ratio is figured on your total payment, including hazard insurance, HOA dues, Private Mortgage Insurance - everything that makes up the full payment.
The second number in the ratio is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt together. Recurring debt includes things like auto/boat payments, child support and monthly credit card payments.
Examples:
A 28/36 ratio
- Gross monthly income of $8,000 x .28 = $2,240 can be applied to housing
- Gross monthly income of $8,000 x .36 = $2,280 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $8,000 x .29 = $2,320 can be applied to housing
- Gross monthly income of $8,000 x .41 = $3,280 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our very useful Mortgage Qualification Calculator.
Just Guidelines
Don't forget these are only guidelines. We will be happy to go over pre-qualification to help you figure out how much you can afford.
Selectplus Lending can walk you through the pitfalls of getting a mortgage. Give us a call: (818)645-7035.